Taiwan Central Bank Statement

Author: | Published: 5 Sep 2017

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The year 2016 started off with export contraction and
weak economic expansion amidst a tepid global economy. As
external demand recovered from the latter half of 2016 onwards,
exports and investment picked up and private consumption grew
moderately. The annual GDP growth rate rose from 0.72% in 2015
to 1.48% in 2016, and the economy is expected to expand by
2.05% in 2017.

Reflecting weather-induced food price surges, the CPI
inflation rate was 1.4% in 2016, while core inflation grew at a
pace of 0.84%. As food prices trended downward, the CPI
inflation rate averaged 0.67% for the first half of 2017. The
Central Bank of the Republic of China (Taiwan) (CBC) forecasts
a mild inflation rate of around 1% for the year as a whole.

Against a backdrop of a slow economic recovery, a widened
negative output gap, and subdued inflation expectations, the
CBC cut the policy rates in both March and July 2016 by a total
of 25 basis points. Afterwards, as the economy strengthened and
inflation was expected to stay stable, the policy rates were
kept unchanged to foster economic growth with the continuation
of easy money and credit conditions. The CBC also conducted
open market operations to maintain adequate liquidity in the
banking system. From 2016 through to the first five months of
2017, bank credit and M2 both grew faster than GDP, indicating
there was sufficient market liquidity to support economic
activity.

On the housing front, targeted macroprudential measures have
proved effective and relevant government policies, including
real estate tax reforms, have also pared down speculative real
estate transactions. Based on these developments, the CBC
announced in March 2016 that while those on high-value housing
loans remained in place, credit controls on home mortgages and
land-collateralised loans were lifted.

During 2016, the CBC continued to maintain dynamic stability
of the new Taiwan dollar (TWD) under a managed floating
exchange rate regime. The domestic financial market was roiled
by erratic short-term capital flows. The TWD was broadly on an
appreciating trend partly because of foreign capital inflows
that resulted in higher net foreign buying than other major
Asian stock markets.

In terms of financial development, the CBC approved a new
range of financial products and the issuance of negotiable
certificates of deposit denominated in Australian dollar,
enriching investment choices for hedging or wealth management.
Financial services have made even greater strides as the CBC
continued streamlining electronic forex business application
procedures for banking enterprises. We also enhanced further
the foreign currency clearing platform services, which further
increases settlement efficiency and significantly reduces
foreign currency remittance fees.

Looking ahead, uncertainties, such as US economic and trade
policies, Brexit negotiations, and a rapid debt build up in
emerging markets, could disrupt international financial markets
and cast a shadow over the global economic recovery. The CBC
will continue to closely monitor the economic and financial
developments in Taiwan and across the world and take
appropriate policy actions in line with its statutory mandate,
including maintaining an orderly foreign exchange market to
safeguard dynamic stability of the TWD.